U.S. Business Group Seeks China Clarity On Rules, Warns On New Investment After Reported Raids

The American Chamber of Commerce in Shanghai has asked the Chinese government to spell out rules for conducting due diligence in the country amid continuing reports of a government crackdown on U.S. companies in that field as well as in consulting work.

‘We are concerned by recent reports about investigations of U.S. companies in China that specialize in due diligence or consulting,” Chamber President Eric Zheng said in an emailed statement today. “It would be helpful if the authorities would more clearly delineate the areas in which companies can or cannot conduct such due diligence. This would give foreign companies more confidence and enable them to comply with Chinese regulations.”

“Due diligence is essential to doing business in China, as it is elsewhere,” said Zheng, a long-time insurance industry executive. “It helps companies better understand a market, an industry, or an acquisition target. Without proper due diligence, foreign companies will be unable to invest in new projects in China,” he said.

China media reported this week that police have raided the Suzhou office of New York- headquartered research firm Capvision on national security grounds. The global expert firm works with 2,000 clients and 450,000 industry professionals, and has also has offices in Hong Kong, Beijing and Shanghai, according to its website. Capvision didn’t respond to a request for comment.

Authorities in March shut the Beijing office of Mintz Group, an American corporate due diligence firm, and detained five local staff, CNN reported. New York-based Mintz Group told CNN at the time it hadn’t received any official legal notice regarding a case against the company and had requested that authorities release its employees. Beijing in April announced a cybersecurity review of U.S. chipmaker Micron that it said was aimed at protecting the country’s information infrastructure and national security. (See report story here.) An executive from Japan’s Astellas Pharma is currently being held on espionage charges, reports have said.

The reported China actions against Capvision are set against a steep decline in U.S.-China relations since a meeting between U.S. President Joe Biden and Chinese President Xi Jinping in Bali last November. Ties have been hurt by Beijing’s close relationship with Russia, its suspected sending of a spy balloon over militarily sensitive parts of the U.S. this year, differences over Taiwan, and worries about data security for American users of China’s popular TikTok platform, among other issues. Business worries have been worsened by the broadening of an anti-spying law that will take effect on July 1 and reported exit bans.

In what was seen as an effort to lower tensions, China Foreign Minister Qin Gang and U.S. Ambassador to China Nicholas Burns met in Beijing this week. “The top priority is to stabilize China-U.S. relations, avoid a downward spiral and prevent accidents from occurring between China and the United States,” Qin said, according to a report by the Xinhua News Agency.

The American Chamber of Commerce in Shanghai is one of the world’s largest overseas AmCham groups with approximately 3,000 members. They include Deloitte, Ford, Cisco, Apple and PayPal. Prominent U.S. companies in Shanghai include BlackRock and Disney.

Multinationals this year have been hopeful about business in China due to an expected pick-up in growth in the world’s No. 2 economy following the send of zero-Covid rules last December. The IMF predicts China’s GDP will increase by 5.2% this year, one of the world’s best. (See related post here.) For its part, however, China is battling high youth unemployment and large debt, particularly in the real estate industry, and has campaigned to attract more international capital.

Strains between the U.S. and China are weighing in business leaders in both countries. In survey published in March by the Beijing-headquartered American Chamber of Commerce in China: some 87% of respondents were pessimistic about the outlook. Bilateral tensions ranked as the No. 1 concern among Chinese companies with investments in America, according to an annual business survey published last Monday by the New York-based China General Chamber of Commerce and the CGCC Foundation. (See link here.) Some 81% of the respondents in the survey of 101 Chinese companies in the months of February and March were worried about the state of bilateral ties. Among them, 44% of Chinese respondents said they expected “further deterioration” in U.S.-China relations, according to the report.

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